Timber investment returns for selected plantations and native forests in South America and the Southern United States

Timber investment returns were estimated for the principal exotic and selected native species in the Southern Cone of Latin America and in the Southern United States. Exotic eucalyptus plantations in South America were most profitable, with internal rates of returns (IRRs) ranging from 13% to 23%, followed by exotic loblolly pine, with IRRs from 9% to 17%. Average loblolly pine plantation returns in the US South were less profitable, with an IRR of about 9.5%, and natural forest management in the South had IRRs of 4% to 8%. Subtropical native species plantations of the best araucaria and nothofagus species had reasonable financial returns, with IRRs ranging from 5% to 13%. Subtropical or tropical native forests had fewer commercial timber species, and had much lower growth rates and returns. Their IRRs were less than 4%, or even negative for unmanaged stands. State subsidy payments for forest plantations or for timber stand improvements increased IRRs somewhat and reserving areas for environmental protection reduced their IRRs slightly. Including land costs in the cash flows decreased these internal rates of return substantially. Natural stand returns in Latin America were much less than those of plantations, but management of those stands offered better rates of return than only holding the land.     

Investment Potential of Private Forests in Croatia

This paper presents a comprehensive financial analysis of the investment potential of seven private forest categories in the Republic of Croatia (total study area of 268,072 ha). It covers the period from 2018 to 2048 and includes forest purchase costs, management simulation, timber transport to mills, timber processing and veneer production, and finally the selling of sawmill, veneer and forest products. Data from the Croatian National Forest Inventory and forest habitats map were used as a basis for analyses. Spatial data on private forests, roads and timber process plants at the national level were also integrated into the analyses. For the forest management simulation, the MOSES 3.0 simulator was used, and the QGis 3.4 software was used for spatial analyses of forests, roads and mils. Based on data from several world stock exchanges that cover companies of the forestry sector, a real (inflation-free) discount rates were used. The financial analyses showed which forest categories have positive investment potential and under which conditions. Results pointed out that multi-aged European beech forests have the highest internal rate of return (8.45%) and are the only one which would meet the expectations of a financially rational investor using criteria of a risk-adjusted inflation-free discount rate of 8%.     

Enhancing the value of multiple use plantations: a case study from southeast Queensland, Australia

In the 1990s, an expansion of small-scale (farm) forestry in medium to low rainfall areas was considered to be an important part of increasing the national forest estate but it remains a very minor source of timber, largely confined to the higher rainfall areas. In most areas, returns from timber are much less than for alternative land uses, even with low discount rates. If however, there are additional returns from plantation grazing and carbon sequestration and there are other potential management gains, multiple use plantations may be more attractive. The goal of this study is to estimate the net present values of multiple use spotted gum plantations in a medium rainfall area of southeast Queensland. For the case study, production, carbon sequestration and emissions data were supplemented by formal and informal interviews with landholders, sawmill staff and government extension personnel. Forest inventory, biomass and soil sampling, and stakeholder interviews were used as sources of primary data. The costs and benefits data were converted into monetary terms and discounted to produce net present values. Evaluations in this study identify the optimal rotation age of plantations to be 33–34?years. This is the case if including carbon and stock values, and using either farm- or factory-gate timber prices. The net present value increases significantly however if farmers harvest the trees themselves. In addition, at harvesting age, it was found that carbon and stock had the potential to account for 19.2 and 11.4?% respectively of the total returns from spotted gum plantations. Policy initiatives to support the farm forestry sub-sector should include pricing greenhouse gas emissions and developing and strengthening farmers co-operatives and marketing institutions to enhance farmers’ bargaining power.     

Private forest investment and long-run sustainable harvest volumes

Private timberlands in the United States have the biological potential to provide larger quantities of timber on a sustainable basis than they do today. Most opportunities for increasing growth and harvest lie on nonindustrial private lands in the South. Past studies, based on fixed scenarios of future prices, also suggest that many of these opportunities for intensified management can be undertaken with positive economic returns. Translation of these physical and apparent economic potentials into projections of future management and harvest requires a model of private timber management investment behavior. This study examines the dynamics of investment in private forest management according to a model of timber markets and timber supply in which intertemporal levels of private investment, harvest, and timber prices are all endogenous. The results of this model are used to examine the extent and types of possible future private management investments and how these will affect timber supply. In addition, the sensitivity of these projections to variations in key market and behavioral determinants is examined through simulation of alternative scenarios involving reduced public timber harvest and constraints on planting investment of nonindustrial private owners.The base case illustrates the substantial potential of timberlands for increased growth and harvest. This requires, however, investments in planting well beyond those observed in recent years. Given this, the area in planted forests would almost triple within the next 30 years. Expanded investment would allow immediate increases in timber harvest and sustained increases in timber inventory, with virtually no trend in softwood log prices. Projected increases in plantation area would concentrate timber production on fewer hectares, with more hectares managed passively. Naturally regenerated forests in the future would cover at least three-quarters of the private timberland area, with hardwoods continuing to dominate. Restricting nonindustrial private plantation investment to levels observed in the recent past markedly alters projections for softwoods, thus raising prices and reducing timber harvest relative to the base case across the full projection period. In contrast, reductions in public timber harvest alone result in increased prices and reduced total cut in the near term, but have limited impact on the outlook three-five decades hence, because private investment effectively compensates for public timber harvest reductions.     

Applying portfolio optimisation to the harvesting decisions of non-industrial private forest owners

The non-industrial private forest owner's optimal harvesting and investment strategies are studied at forest holding level by including individual forest stands in an asset class portfolio. The forest owner can either clearcut mature stands and invest the capital in financial or real asset classes (bank deposits, government bonds, stocks, apartments) or postpone clearcutting and retain capital in standing trees. Forest inventory data from actual forest holdings in Southwest Finland, the simulation–optimisation software MELA, and statistics on timber prices are utilised to compute the return series for forest stands. The numerical results show that the optimal level of clearcutting decreases markedly with initial non-forest wealth, especially at low risk-free rates of interest. It may therefore be rational for non-industrial private forest owners to consider shorter rotation periods than those of investors with diversified portfolios. The correlations between returns from forest stands are high, implying that increasing the variety of stand structures achieved by planting different species is not likely to bring substantial diversification benefits. The favoured investment outlet for harvesting revenues (apartments, government bonds or stocks) is sensitive to the period of historical data used to compute the return series and risk-free rate of interest. The value growth of forest stand can be used to estimate annual returns only for those stands that are readily mature. An alternative method of computing returns on stands in any development phase is proposed, based on net present value of stand adjusted for fluctuations in forest land prices. This method applies if selling forest land is considered an option. If selling is not an option, the ratio of maximised net present value to value at immediate harvest can be used as a ‘maturity index’ for ranking the stands for portfolio optimisation.     

Land Allocation with the Introduction of Teak: A Case Study of Smallholder Farms in Southern Togo

Subsistence landholders in southern Togo are interested in planting teak on their land for income generation. The purpose of this study was to determine how smallholder farmers could allocate land among maize, cassava, and teak plantings in order to optimize financial returns. A linear programming model was developed to calculate the optimal land allocation for maize, cassava, and teak. The model was solved for five farmer types using 15- and 30-yr teak rotations, with timber priced at alternative market and government market prices, and with discount (real interest) rates of 8, 11, and 15%. The analyses indicate that growing teak is profitable for most smallholders if grown on a 15-yr rotation and sold on the alternative market. For Land Rich-Labor Poor farmers, teak is profitable under all regimes.     

闽西北人工林经济效益动态分析

为比较人工林的不同林分在不同林龄下的经济效益,依据与当地林业生产企业的资料和数据,采用净现值法、内部收益率法等经济分析方法,分别对不同龄级的杉木、马尾松和桉树人工林的动态收益进行分析,并对工资水平、成本、税费、木材产量和价格进行敏感性分析。研究结果表明：各种林分和龄级人工林的净现值均大于零;桉树林的内部收益率最高,木材产量和价格对经济效益的影响最为明显。     

Increasing rotation periods during a time of decreasing profitability of forestry — a paradox?

The profitability of forestry in Germany decreased during recent decades because of more or less constant prices for forest products, increasing input prices and limited success in rationalisation. However, the volume of growing stock increased significantly during this period since forest enterprises have chosen longer rotation periods. This is especially true for state owned and community owned forests but also at least partly for private forests. It is normally not an alternative for the owners of forest enterprises in Germany to sell the forests completely, but on a first glance increasing investments in standing timber during a time of decreasing profitability of forestry seems to be inconsistent with economic theory. On the one hand this observation could be explained as the result of non-timber values. However, this paper is focused on another approach, which is an expanded Faustmann model in line with soil rent theory and focused on timber production. Profitable rotations in the future have the effect of shortening the optimal rotation period because an investment in standing timber causes opportunity costs by delaying the establishment of the next generation of the forest. Unprofitable future rotations have the opposite effect, if the landowner is forced to reforest. In case investments in reforestations are not profitable decision-makers have good reasons not to cut the mature stands, in spite of the fact that the internal rates of return of investments in standing timber are low in comparison with investments on the financial market. Empirical data for the period 1954–1998 mostly from guidelines for forest valuation are used together with inflation corrected interest rates to show that optimal rotation length increased over time. Nevertheless we have to recognise that the observed rotation periods are distinctly longer than the calculated optimal rotation lengths. Other factors which may also explain the investments in forestry are discussed later.     

Economic impacts of accelerating forest growth in Europe

The global forest sector model EFI-GTM was applied to assess regional impacts in Europe of increased timber supply caused by potential acceleration of forest growth in Europe. The EFI-GTM is a multi-periodic partial equilibrium model, which contains 31 European regions and 30 regions for the rest of the world, and trade between the regions. The endogenous sectors include 26 forest industry products and six wood categories. Three alternative forest growth scenarios were analysed: a base line assuming the present annual rate of growth in the European countries, and two accelerating growth scenarios corresponding to a 20 and 40% increase after 20 years in the forest growth relative to the baseline growth. In the accelerated growth scenarios equilibrium prices for logs and sawnwood decreased significantly from the baseline levels, whereas the other forest product prices were not affected much. Depending on region and timber category, the log prices in 2020 were 7–9 and 13–17% lower than the base line prices in the medium and high forest growth scenarios, respectively. For sawnwood, the corresponding price decreases were 2 and 3.5–4.5%. In Western Europe, log harvest and sawnwood production increased because accelerated forest growth substituted for imports of these commodities from Russia and Eastern European countries. This decreased the harvests in Russia and Eastern Europe relative to the base case. In all the three forest growth scenarios the forest owners income as well as the forest industry profit increase over time.     

An integrated spatial assessment of the investment potential of three species in southern Ontario, Canada inclusive of carbon benefits

This study explores the economic feasibility of several long-rotation afforestation scenarios for southern Ontario, Canada. Three species, red pine (Pinus resinosa Ait.), Norway spruce (Picea abies L.) and black walnut (Juglans nigra L.) are examined. We integrate growth and yield models, site suitability maps, and several management scenarios to investigate the investment attractiveness of these species inclusive and exclusive of carbon sequestration values. We report net present values (NPV), internal rates of return (IRR) and two break-even price metrics. For wood value only scenarios the IRRs range from 4.3 to 4.6% for red pine and 3.4–3.6% for Norway spruce (for the most attractive 10,000 ha, in a single rotation scenario). Black walnut had rates of return 3.5–3.7% for the most attractive 10,000 ha area. Adding carbon valued at Cdn $3.4 per metric ton CO_2 − e (roughly 2005 prices in the Chicago Climate Exchange) increases rates of return by about 0.6% for red pine and Norway spruce and 0.4% for black walnut scenarios. Perhaps surprisingly these returns are comparable and better than 20-year rotation hybrid poplar plantations. To achieve a 6% real rate of return break-even carbon prices were $10.7/t CO_2 − e for red pine, $12.6/t CO_2 − e for Norway spruce and $17.2/t CO_2 − e for black walnut (again for the “best” 10,000 ha). Although somewhat unremarkable, the results suggest that these longer-rotation species may be a better investment than perhaps previously expected if landowners have the appropriate site conditions.     

Comparing the financial performance of traditionally managed beech and oak stands with roomy established and pruned stands

Beech and oak stands are normally established with high numbers of plants. On one hand, this costs a lot, but on the other hand, knot-free timber may be expected only in this way. This study analyses whether roomy establishment and, as a result, lower timber quality lead to financial advantages over the normal treatment. In addition to this, it is tested if pruning of roomy established beech and oak stands is financially advantageous. For this valuation, conventionally managed stands were simulated with the forest growth simulator Silva and for the roomy established stands, data from trial plots were completed with Silva. The development of the pruned oak stands followed the yield table of Jobling and Pearce (Free growth of oak, Forest record number 113, Forestry Commission HMSO, London, 1977), while for beech the development of the diameters orientated to an investigation of Hasenauer et al. (Österr Forstztg 105:28–29, 1994). Based on the assortments contained in the stands, a valuation of the different treatments was done with annuities within a Monte Carlo simulation, thereby including the volatility of timber prices and the risk of natural hazards. Additionally, the imputed costs per cubic meter of produced timber and the minimum share of high-value assortments on the pruned trunks were calculated for the required rates of return of 1, 2 and 3%. The conventionally managed beech and oak stands were found to be inferior from the financial point of view. Even the non-pruned stands with roomy establishment were superior despite the lower timber quality. The minimum share of high-value assortments on the pruned trunks were between 6 and 410%. Particularly in the case of high values of the land, the maximum volume of high-value assortments was not sufficient to achieve certain rates of return. Nevertheless, the stands with pruning and low-density management were more profitable. In addition to this, it was ascertained that pruning of beech and oak is possible and does not hinder the production of high-value assortments.     

Product diversification in South Africa’s commercial timber plantations: a way to mitigate investment risk

We used the portfolio method to examine how a forest company can lower investment risk by producing a mix of timber products. We derived optimum combinations of pine (Pinus patula) saw timber production and eucalypt (Eucalyptus grandis) pulpwood production at landscape level. Our results indicate that producing a product mix rather than a single product improves aggregated financial returns and lowers investment risk over multiple rotation periods. The optimum mixture depended on past timber price correlations for pulpwood and sawn timber in South Africa between 1980 and 2011. This ideal mixture is comprised of areal ratios of about 45% saw timber and 55% pulpwood. Our example shows how economic risk of a forest investment can be reduced by creating a portfolio of a number of products. The risk that an investor has to accept for each monetary unit that is expected in return can be reduced by over 40% when comparing the risk–return combinations of a pure pine saw-timber stand with that of a portfolio of forest products. The risk associated with the production can be reduced by 20% when growing a portfolio of products rather than eucalypt pulpwood only.     

The potential rural development impacts of utilizing non-merchantable forest biomass

The development of a market for currently non-merchantable forest material, such as harvest residues or small diameter trees, has been suggested as a possible win-win solution that could: (i) provide a material that can be processed in rural communities reeling from changes in the forest products industry and policy environment; (ii) capture more value from timber management activities; and (iii) provide a financial incentive for treatments to reduce wildfire risk or restore forest stands. Modeling the supply of this material with spatially-explicit potential demand locations allows for a realistic analysis of the feasibility of such a market to stimulate rural development. We model multiple scenarios for the utilization of harvest residues within the current forest products market in western Oregon. Sensitivity analysis explored the effects of cost of the depots on feasibility, including policy designed to support depot establishment through subsidies. Scenarios were also used to assess the effects of increases in federal harvest activities. Results suggest that with relatively high biomass prices, there is some potential for investment in depots to aid rural communities in western Oregon, but there is little change in either the overall feasibility or the location of depot establishment under scenarios of increased federal harvest.     

对发展我国速生丰产林有关问题的思考

本文在明确速生丰产林概念的基础上, 着重探讨了发展速生丰产林在我国林业建设中的地位, 澄清了国内外不同林业发展战略思路(如接近自然的林业, 林业分工论, 新林业学说和生态林业等) 与发展速生丰产林的关系.最后根据园内外发展速生丰产林(工业人工林) 的经验和教训, 指出今后我国速生丰产林的发展道路及应注意的问题.     

Effects of permanence requirements on afforestation choices for carbon sequestration for Ontario, Canada

This study examines the economic and spatial impacts of afforestation choices for carbon sequestration in Ontario, Canada when the non-permanence of forestry carbon offsets is taken into consideration. We test six scenarios including three long-term projects with red pine, Norway spruce and hybrid poplar plantations and three shorter term hybrid poplar scenarios that produce temporary carbon emission offsets. We convert the break-even costs of sequestering carbon to a permanent carbon offset equivalent and analyze the possible geographical implications of the choices across eastern, southern and central Ontario, Canada.The most financially viable scenarios show a relatively large part of central Ontario with attractive choices at a 4% discount rate but a much smaller area at an 8% rate. The assumption about the future price evolution of temporary carbon offsets is one of the biggest factors that influence the attractiveness of these choices. At the 4% discount rate and the assumption of rising prices of permanent carbon offsets, the scenarios that store carbon for long periods appear to be the least-costly option. Hybrid poplar appears as the best choice in southern Ontario and a mix of conifer species and hybrid poplar in the central and northern parts. When future prices of temporary carbon offsets are assumed to decline, temporary hybrid poplar projects appear to be more attractive in the southern and eastern parts of the province. The variety of alternative scenario choices also depends on the discount rate and future price expectations for temporary carbon offsets. For a relatively narrow deviation of the carbon offset price (±$0.6 t^-1 CO₂), only 4% to 9.2% of the total 5.8 million ha area would have one or more potentially viable alternative scenarios at the 4% discount rate and almost zero alternatives at the 8% rate. Higher discount rates lead to fewer attractive choices, suggesting that landowners would be left with very few options when trying to maximize net returns from plantations.     

Return and Risk in Timberland and Other Investment Alternatives of NIPF Owners

No comparisons for Non-Industrial Private Forest (NIPF) owners of the returns on timberland and other investment alternatives, or of the risks in different investments, have been made in Swedish forest economics research. Modern portfolio theory in forest economics has been used to a very small extent in all of Europe, with the exception of Finland. The underlying idea in this study was to apply "the mean-variance framework" in Swedish forest holdings and make comparisons with some other investment alternatives. The results showed that forest holdings had a medium-high return and a high risk. Shares showed high returns and a relatively high risk. Bank assets showed low returns and a low risk. The lowest returns were seen for agricultural holdings. There were negative correlations for forest holdings with several other assets, which means that forest as one investment in a portfolio can be defended when the risks are spread out over time. The result indicates that it would be of interest for NIPF owners to reduce their investments in timberland and increase their share holdings. However, the portfolio mixture depends on the risk preferences of the owners.     

Palmito sustainability and economics in Brazil''s Atlantic coastal forest

A number of palm species produce edible palm hearts, or ‘palmito’ as it is called in Brazil. Palmito jussara (Euterpe edulis) is a favorite for both international export and Brazilian consumption. Except on private lands, extraction of wild jussara palmito (or just ‘palmito’) from Brazil's Atlantic Coastal Forest is illegal. Yet palmito extraction in this forest continues on a large scale because of profitability for palmito processors and merchants, ineffective government intervention, and relatively attractive earnings for low-income palmito harvesters (‘palmiteiros’).

Because most palmito cutting and transport is clandestine, virtually no information is available on the financial returns from palmito extraction. However, the question is central for discussions of sustainability in unmanaged vs. managed agro-ecological systems. While reliable data are impossible to obtain, we interviewed several individuals in Brazil in order to formulate scenarios of palmito production, prices, and costs. We simulate the uncertainties in assumptions and data to generate a range of estimates on the net value of palmito management alternatives.

Financial net present value (NPV) of palmito extraction is highly sensitive to the time value of money (discount rate). ‘Managed’ extraction is more attractive than unmanaged extraction at low discount rates. As the discount rate increases, the attractiveness of sustainable palmito management decreases. All scenarios suggest that palmito cutting is very lucrative, explaining current institutional problems in controlling its commerce.     

The shrinking profitability of small-scale forestry in Japan and some recent policy initiatives to reverse the trend

About 80% of annual wood fiber consumption in Japan is imported. Even though most of the land surface is covered by forests in Japan, the domestic forestry and forest industry are threatened by such imports flooding the local market. Fragmented land ownership, steep terrain, rapid growth of weeds, and high labor costs have all contributed to the decline of domestic forestry. Further, the purchasing power of the Japanese Yen has become very strong in recent years, and the decreasing prices of imported timber have depressed the prices of domestic timber, eroding profitability and discouraging small-scale forestry. In spite of these difficult circumstances, there are several interesting new developments in Japanese forestry. One is the revision of the Basic Forestry Law of 1964, through which the Japanese government is steering forest policy from timber production towards environmental services. Because of this change, new ways to assist rural forestry activities will become available in the near future. Another change is the certification movement, where recent examples of Japanese companies acquiring ISO 14001 and Forest Stewardship Council (FSC) forest certifications provide hope to depressed domestic forestry activities. In particular, FSC group certification is useful in motivating small-scale forest owners to implement and maintain sustainable forestry practices. This paper is based on the presentation at IUFRO Group 3.08.00 Symposium at Joensuu, Finland 2001. The original article, ‘The economic situation of small-scale forestry in Japan’, is in Niskanen and Vayrynen (2001).     

Development strategies for privately owned forestry in the mountainous region of Sweden

Forestry in Sweden as well as in other European countries is characterised by intense and increasing international competition resulting in decreasing roundwood prices in real terms. This is especially the situation in the mountainous region of Sweden with long transportation distances between the felling site and the processing industries located at the coast. The question arises whether forestry must be run more extensively than at present to achieve the optimal rate of silvicultural activities compared with the amount of timber cut. With this in mind, optimising economic analyses have been performed at the stand level as well as at the level of forest estates. Results of the analyses reveal that more intensive thinning (more frequent operations) and shorter rotation periods would increase profit and offset continuously decreasing roundwood prices. Intensive pre-commercial thinning (cleaning) is especially important for profitability of the subsequent thinnings and the final cut. The large number of cuts during the rotation will increase logging costs. However, this will be more than offset by the increasing production of economically matured dimensions of timber, an effect that will be still more pronounced when using new harvesting technology. Moreover, frequent high thinning operations (thinning ‘from above’ or removal of dominant trees) will result in more dense wood close to the pith, more evenly distributed year rings, and fewer and smaller knots in the lower part of the stem — in other words more valuable roundwood which will justify high transportation costs. Several biological and technical aspects of these treatment programs are discussed in the paper.     

The impact of SFM-certification on forest product markets in Western Europe — an analysis using a forest sector simulation model

In the international discussion on labels for sustainably produced wood products based on the certification of sustainable forest management (SFM), little attention has been paid to what is probably the most crucial part of any market-based instrument: the potential impact on forest products markets. This paper analyses the potential impact of SFM-certification on forest products markets using a simulation model of the Western European forest sector. Two scenarios with assumptions regarding certification (chain-of-custody costs, timber supply reduction from certified forests) are projected for the period 1995–2015 and tested against the results of a base scenario (‘business as usual’). In general, the results show that rather modest changes are to be expected from SFM-certification in forest products markets. The market impact of a timber supply reduction from certified forest would be more distinct than the impacts of chain-of-custody costs. Industry gross profits would decrease more than production. Due to the large share of roundwood costs in total costs, the sawmill industry would be affected more by even small changes in raw-material prices than the panel and paper industry.